Publication Date

7-9-2013

Description

Why Microfinance? Why separate Microfinance Institution (MFIs) from other financial institutions? My answer is that Capital markets in developing countries are imperfect and poor are unable to access these markets. Thus to address this ‘market failure’ and provide avenue for low-income families to access financial service the MFIs have to be set up separately from commercial banks. There is a clear ‘public good’ element associated with Microfinance and hence the role of the Government intervention in this sector becomes justifiable compared to commercial banks where the Government is ought to be confined to regulator and supervisor only. This other distinguishing feature of Microfinance is that it has to meet double bottom line i.e. to combine financial sustainability with social performance. What is the evidence about the impact of the Microfinance? Although it would be unfair and unrealistic to think that Microfinance is the panacea for poverty alleviation but studies do show that it helps in smoothing consumption, reducing vulnerability and modestly increases income and assets of the poor households.

Notes

Keynote address at Microfinance summit Pakistan 2013, Islamabad, July 09, 2013

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